Market snapshot
Most Asian currencies lost ground on Friday as the U.S. dollar firmed amid continued worries about the trajectory of the U.S.-Iran conflict. Investors favoured the greenback as a refuge from geopolitical risk, and the currency was on track for its strongest weekly gain since early March.
Geopolitical jitters and market sentiment
Regional risk appetite softened as markets assessed the likelihood of further U.S.-Iran negotiations and judged that a rapid de-escalation was unlikely in the near term. While the U.S. extended a ceasefire with Iran indefinitely this week, Iran kept up attacks on shipping in the Strait of Hormuz and the U.S. retained its naval blockade in the area. U.S. President Donald Trump said on Thursday he was in no rush to end the war, even as a separate ceasefire between Israel and Lebanon was extended by three weeks.
Those developments kept demand for safe-haven assets elevated and boosted the dollar. At the same time, concerns that the conflict could push oil prices higher and thereby revive inflationary pressures fed expectations that central banks globally may stay more hawkish than previously anticipated, a stance that also benefits the greenback.
Japanese yen and domestic inflation data
The Japanese yen weakened despite a hotter-than-expected jump in consumer prices in March. The USD/JPY pair rose nearly 0.2% and traded close to its weakest levels since July 2024. The data pointed to some upward pressure on prices driven by fuel and transport costs, pressures likely linked to the Middle East tensions. However, much of the inflation increase was offset by Tokyo's continued subsidy measures to blunt living-cost pressures.
The inflation release arrived just days before a Bank of Japan meeting, where the central bank is broadly expected to keep interest rates unchanged. Analysts at Capital Economics noted the BOJ could nevertheless indicate a readiness to raise rates later in the year, with a June increase appearing likely under their assessment.
Dollar performance and regional currency moves
The dollar index and related futures edged higher in Asian trade and were up roughly 0.8% for the week. That rise made it the dollar's strongest weekly performance since early March. Safe-haven flows and reduced expectations for near-term Fed rate cuts were cited as key drivers of dollar strength.
Across Asia, the Chinese yuan's USD/CNY pair rose nearly 0.2% on Friday and was positioned for modest weekly gains. The Singapore dollar and South Korean won both weakened slightly against the dollar, with USD/SGD and USD/KRW inching higher. The Australian dollar was essentially flat versus the greenback.
The Indian rupee slid further, with USD/INR rising about 0.2% and pushing beyond the 94-rupee mark. New pressures on the rupee came after the Reserve Bank earlier in the week eased some measures that had been in place to support the currency. A spike in oil prices represented a major headwind for the rupee given India's substantial dependence on energy imports.
Implications
Persistent geopolitical uncertainty and the accompanying fear of higher energy-driven inflation are influencing currency markets across Asia. The dollar's relative strength is being underpinned both by safe-haven demand and by shifting expectations around central bank rate paths. The BOJ meeting and further developments in the U.S.-Iran situation are likely to remain important near-term catalysts for FX markets.